Forex Forecast NZDUSD

Swing Trading the NZDUSD

Swing trading almost by definition means taking long positions as an asset moves lower, trying to take advantage of the way it moves forward in waves. Ths opportunity may be a good 'buy the dip' opportunity the mainstay of my trading.

Technical argument

T​his is the NZDUSD or kiwi monthly chart, it shows price moving in a channel from its all time low and putting in an unbroken series of Higher Highs and Higher Lows. Price is fairly close to the lower end of the channel making this chart fairly supportive to a long position.

If we zoom in a little chart belowThis chart, the weekly, begins with the last HL on the monthly and shows a series of higher highs and lows developing. A trend line also seems to be forming at this timeframe with a suggested path for the pair showing as pin arrows. Essentially a drop to 0.70 before rebounding to a new high at 0.78, that price action would keep the weekly trend alive and suggested the monthly pattern was continuing higher. The daily chart does not seem to offer any further insight or contradict the general theme.

The Fundamentals

​The Kiwi has two key drivers terms of trade and global dairy prices, in turn they provide the fuel from any interest rate speculation that may be building, New Zealand already has the highest interest rate of (1.75%) of the 8 majors and that leads to it being known as a carry currency. The carry trade is where people borrow at low interest rate in one country and deposit it in a second currency at a higher rate, being forced to buy the higher interest rate currency and pushing it higher in the process.

​Although last month the inflation rate dropped causing a significant pullback in the currency the trend looks pretty clear, it seems to be moving higher and at 1.7% is pretty solid if it gets above 2% again the RBNZ will be forced to switch from their recently adopted neutral tune to a more hawkish one. The RBNZ are an interesting central bank, in many ways they have developed much of the current framework in which todays banks operate, they came up with the idea of forward guidance and targeting inflation, they are well aware that as a small island nation they need to be more nimble than most as the economy can be buffeted from afar. They move rates often far more than anybody else indeed since 2014 they have moved rates 10 times, in contrast the fed have moved 4 times and the BoE just once.

The unemployment rate, another great indicator of economic strength has reduced significantly in the last two years, this is despite high immigration and suggests an economy doing really quite well.

As always the word on the economy is not completely positive, the afore mentioned Gobal dairy prices have recently shown a small down tick after what was a really strong start to the year but ​when looked over 12 months the trend still appears to be higher, rising prices here is equivalent to good NFP for the US dollar. (at least in terms of market movement, dairy price is the chart onthe left below)Finally we have my surprise index, this looks at every piece of data released from New Zealand this year and compares with previous and forecast results. It shows the economy swinging from gains to losses with some evidence of a new upswing but not enough to suggest a really storming economy.

Conclusion: Long NZDUSD around 0.70

Technical and fundamental analysis suggests a good swing postion could be estalished around 0.70, stop loss would need to be around 0.68 bit with a reasonable target of 0.77 risk reward is very good.

RetiredearlyFX is a trading name of the investment company Bagehotsway.We are not a regulated company but we only sell regulated products.We are not authorised to give investment advice.We believe all figures quoted to be accurate but past performance in no way guarantees future performanceTrading FX is high risk and not suitable for everyone.